Tax Break to the buyer of electric Vehcile- A welcome proposal in Union Budget – II


Tax Break to the buyer of electric Vehcile- A welcome proposal in Union Budget – II

“We do not inherit the earth from our ancestors; we borrow it from our children” – Chief Seattle

Pollution should never be the price of prosperity. To promote the use of electric vehicles in the country, recent Union Budget – 2019 has proposed to incorporate new section 80EEB in the Income Tax Act – 1961. Electric Vehicles is now all set to get to a major Boost as it will offer direct tax benefits to number of individual taxpayers. The logic behind section 80EEB as incorporated in the memorandum to the Finance bill is reproduced hereunder:

With a view to improve environment and to reduce vehicular pollution, it is proposed to insert a new section 80EEB in the Act so as to provide for a deduction in respect of interest on loan taken for purchase of an electric vehicle from any financial institution up to Rs. 1.50 Lakh  subject to the following conditions:

  1. The loan has been sanctioned by a financial institution including a non-banking financial company during the period beginning on the 1st April, 2019 to 31st March, 2023;
  2. The assessee does not own any other electric vehicle on the date of sanction of loan.
  3. It is also proposed that where a deduction under this section is allowed for any interest, deduction shall not be allowed in respect of such interest under any other provisions of the Act for the same or any other assessment year.

This amendment will take effect from 1st April, 2020 and will, accordingly, apply in relation to assessment year 2020-2021 and subsequent assessment years.

It’s a deduction over and above the regular deduction U/s 80C towards LIC/PPF, U/s 80D towards mediclaim, u/s 80CCD(1B) towards NPS, etc.For the first time, an additional incentive is proposed to be provided for purchase of electric Vehicle, as under:

  1. The meaning of Electric vehicle is not restricted to Car alone but all electric vehicles are covered. Even two wheeler purchased will offer the tax benefit to the taxpayers.
  2. The most important part is that the benefit is available only to an Individual. HUF cannot take the benefit of section 80EEB. Similarly, Firm, Company, AOP, LLP, etc also cannot take the benefit of section 80EEB.
  3. The businessmen can claim deduction towards interest paid on any loan availed for purchasing business assets against its business income. No such deduction/benefit was available to the salaried taxpayer. But, now even other individual taxpayers like Salaried taxpayers, pensioners, Taxpayer with rental or interest income alone can also take the benefit of deduction u/s 80EEB.
  4. Use of the vehicle by the taxpayers is not a condition for deduction u/s 80EEB. Even vehicle taken for the use of the family members, relatives, other persons etc can offer tax sops in such cases.
  5. The deduction is available only if the vehicle is purchased by availing loan between 01.04.2019 to 31.03.2023.
  6. No deduction is available if the loan is taken from friends, employer, credit society etc. Deduction is available only if the loan is taken from “financial institution”.  “Financial institution” for the purpose means,

i..   banking company to which the Banking Regulation Act, 1949 applies, or

  1. any bank or banking institution referred to in section 51 of that Act and

iii.   includes any deposit taking non-banking financial company or

  1. a systemically important non-deposit  taking non-banking financial company as defined in clauses (e) and (g) of Explanation 4 to section 43B
  2. The deduction is available only if the taxpayer doesn’t own any other vehicle on the date of sanction of loan. In short, if the taxpayers already owns electric vehicle, no deduction would be permissible u/s 80EEB.

Whether businessmen can claim double deduction:

Interest deduction u/s 80EEB is available only if it is not claimed as deduction under any other provision of the I.T. Act.  Taxpayers having business/professional income can claim deduction towards interest on purchase of any business assets against its regular business income and as a result no benefit of deduction u/s 80EEB will be available.  If the electric vehicle is used as personal assets then the taxpayers will be able to claim the benefit of deduction u/s 80EEB as interest is not allowable as deduction while computing income from business. But, in such cases, the taxpayer will also have to forego the benefit of deduction towards depreciation as it is available only if the asset is used for the purpose of business. [Depreciation is broader and better benefit as it results in deduction towards the entire cost of vehicle over different years whereas interest deduction is available only towards interest which is very limited i.e., only certain percentage of the loan amount].